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Mutual Fund Education
David Dierking Dec 26, 2017
The introduction of a ‘clean share’ class of mutual fund shares is a product of the fiduciary rule that gives investors a more transparent, easy to understand, low cost means of investing in mutual funds. Used properly, clean shares can improve an investor’s risk-adjusted returns.
To learn more about the Department of Labor’s fiduciary rule, click here.
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These shares still generate sales fees for the advisor, but at a generally lower rate than before, helping to reduce any potential conflicts of interest. T-shares, in most cases, charge a level 2.5% front-end load, regardless of the product being sold. This gives investors not only a clearer understanding of what they’d be paying up front, but T-shares often come cheaper than traditional share classes sold through brokers. A 0.25% 12b-1 fee would likely be charged with T-shares to pay for distribution fees and other expenses.
Check out our Complete Guide to Mutual Fund Expenses to learn more.
The A-share class of this fund charges a maximum 5.75% sales charge. It charges a total expense ratio of 0.58%, which consists of a 0.24% management fee, a 0.24% 12b-1 fee and a 0.10% fee for other expenses. A T-share class of Washington Mutual could keep the expense ratio structure, but an advisor would only be able to charge a maximum 2.5% sales load. In this case, the American Funds group might become less attractive to financial advisors if funds with lower sales loads get put on a more level playing field.
A clean share class of Washington Mutual would carry no sales load charges. Investors would instead be charged an advice-related fee, which could come as an annual percentage of total assets managed or a flat annual fee.
Click here to learn more about what goes into a mutual fund management fee.
The rule discourages the practice of selling products based largely on the level of fees charged instead of the appropriateness for the client. If advisors work with clean shares, and charge fees based on assets being managed, both investors and advisors can mutually benefit as overall portfolio assets grow.
To learn more about what the new fiduciary rule means for you, click here.
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